U.S. CBO: savings from higher Medicare age shrink dramatically

WASHINGTON (Reuters) - For U.S. budget negotiators who may want to raise the retirement age by two years to shrink deficits, the Congressional Budget Office has some bad news: the savings would be considerably less than previously thought.

The CBO said in a report released on Thursday that raising the normal eligibility age for Medicare health coverage to 67 from 65 in 2016 would reduce federal budget deficits by only $19 billion through 2023.

That compares with $113 billion in 10-year savings estimated in a 2012 CBO study of a similar move.

The difference is a new analysis of Americans who are 65 and 66. They are still relatively healthy and would likely cost Medicare less than previously estimated, CBO said, so denying them access would save less.

Many of these people also are expected to be still in the workforce and rely primarily on employer-provided health insurance. Medicare would be providing coverage only as a secondary payer, further reducing their costs to the program, the nonpartisan budget referee agency added.

These two factors slashed the CBO's net Medicare cost estimates for 65- and 66-year-olds by 60 percent compared with the 2012 study.

The 65- and 66 year-olds not working or without employer-provided health benefits would still be more likely to apply for coverage under the Medicaid health program for the poor, or for federal subsidies for coverage purchased on "Obamacare" insurance exchanges, the study said. But the cost increase for these programs is about the same as the 2012 study.

The new study is likely to encourage Democrats who have been resistant to reforms of Medicare and Social Security, especially raising eligibility ages. These programs are a key focus for deficit reduction efforts by Republicans, who argue that if left unchanged, they will be overwhelmed by the costs of caring for the massive Baby Boom generation as it ages.

Rather than make structural changes to Medicare, Democrats would prefer to control the program's costs by introducing more efficiencies into the healthcare system and shrinking the growth of reimbursement rates to healthcare providers as well as drug costs.

The CBO study projects a $63.5 billion reduction in Medicare outlays through 2023 from the higher eligibility age, offset by a $40.5 billion increase in Medicare and Obamacare subsidy costs and a $4 billion decrease in federal revenues.